A typical speech from Xi Jinping. Full of rhetoric, light on substance.

President X is the master of fluff. While more genuine than his efforts at Davos, the lack of detail wont appease the US

A typical speech from Xi Jinping.

Full of rhetoric, light on substance.

He is the master of fluff. The only new sector that was mentioned was autos where he said that tariffs would fall and that foreign equity participation in local ventures would increase.

The most interesting part of the speech for me was the idea of “encouraging normal technology exchanges”. In the context of the current environment, the ambiguity of this statement will mean that the issue of technology transfers wont get solved. What a foreign company views as a “normal technology exchange” may be very different from that of Chinese companies.

Whilst this speech is certainly more sincere than the disingenuous grandiosity that was his free trade speech at Davos, one needs to take these speeches with a grain of salt. Yes, they will be good for markets in the short term but the practical results, if any could take months, if not years to flow through. There was no substance here and while it could reduce the selling pressure in the likes of Boeing, Caterpillar or Deere, this will not stop the Chinese from matching President Trump dollar for dollar regarding any tariff announcements. The one caveat is that the US only imports around $135bn of goods (depending on planes) from the US, so $150bn of tariffs to match the US will need to see the Chinese get a little more creative. However, do not think for a single moment that President Xi will cave. In fact, after this speech, the Chinese probably believe they have done enough and that these “concessions” will be sufficent to put the issue to bed. I doubt whether President Trump and his merry band of protectionist feel the same way and if Peter Navarro, author of “Death by China” has his way, we are only in the early stages of a multi-year adjustment. Opening up vehicle imports and chit chat about intellectual property transfers won’t cut it.

US / China trade ceases to be a drag on markets when China provides details on any additional retaliatory tariffs in an attempt to equal President Trump’s $100bn announcement. Whether or not this goes through remains to be seen but if President Trump is true to his word, China will match it. $100bn of additional tariffs would cover, in USD terms, all Chinese imports from the US so this, ex announcements on investment or heaven forbid, US treasuries (highly unlikely), should be the point of maximum stress for financial assets.